Creating Markets - the Imarex Group

Trading the new BDIFutures contract

Mikal Boe Imarex Asia Pte Ltd

Wednesday 18th June 2008

Creating Markets - the Imarex Group

fast growing commodity exchange

Worlds only regulated market for freight swaps, futures and options Hybrid exchange model with Brokers, E-Trading (Exchange) and Clearing Founded 2000 IPO 2005 (OSE: IMAREX) market cap appr NOK 2 Billion 15% owned by NYMEX Holdings (acquired Oct 2007), 295 employees worldwide Commodites worth US$200 billion traded via IMAREX Group in 2007 Over US$10 billion in freigth traded electronically on IMAREX screen in 2007 Global dry bulk and tanker freight futures and options (15% / 50% market share)

Creating Markets - the Imarex Group

Imarex Group services and markets

The Group serves its members and clients around the world working in four main operational sectors of the commodity markets. Regulated exchanges and electronic trading platforms Derivatives clearing and settlement Derivatives and physical commodity brokerage Commercial market research and analyses services

IMAREX Group operates across the four operational sectors in the following markets: Dry bulk and tanker freight derivatives UK, Nordic and European energy derivatives European and US emissions derivatives Physical UK, European and US natural gas markets Crude oil and middle distillates derivatives Nordic salmon and seafood derivatives London Metals Exchange derivatives Weather derivatives Physical coal Nuclear fuels

Trade via direct membership or via general Clearing Members

Creating Markets - the Imarex Group

Who Trades at Imarex?

Global client base for NOS Clearing and IMAREX All the main commodity traders are present 200 CLEARING members in Q2 2008

Creating Markets - the Imarex Group

Electronic trading on the IMAREX screen

The IMAREX trading screen is the ONLY successfully liquid trading screen in the freight derivatives market Screen activity: 5000 transactions / quarter 100 000 lots / quarter USD 5 Billion + /quarter Members trade DIRECT on screen or via IMAREX brokers in Oslo, Houston, London and Singapore ALL prices are FIRM and therefore transparent Clearing affords complete anonymity to traders when trading on screen Screen is open 24 Hrs per day

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The Dry Bulk FFA market in 2008

$125 billion notional value expected in 2008 2 million lots traded 2007 Priced in US dollars per day (equivalent to time charters) Trades differently than tankers Contracts are in # of days, not in Worldscale Fewer trades, though larger notional values Price discovery can be choppy Market heavily dependent on handful of voice brokers

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The growth of clearing for Dry Bulk FFAs

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2002 2003 2004 2005 2006 2007 2008e 2009e 2010e OTC Cleared

Liquidity still low with relatively few but very large contracts traded every day Clearing has brought more new market participants, but still very shipping focused Clearing is primarily OTC clearing Clearing should enable electronic trading, market now looking for a screen traded model Model for future development may come from the tanker FFA market where small contracts are traded frequently in large volumes.

2002-2007 sees growth in clearing from 1% to 30%

Creating Markets - the Imarex Group

A new tool for dry bulk investors

Dry bulk shipping is booming The BRICs are forecast to continue driving commodity demand for up to 20 years How can you invest in this growth story? 1. 2. 3. 4. BUY dry bulk shares on NYSE, NASDAQ. LSE and OSE Trade FFAs Trade Commodity related ETFs ... or

Now BDIFutures, a new tool for dry bulk investors Simple index future on the main dry bulk indicator BDI Tradable electronically cleared at NOS Clearing or via clearing banks and brokers MINI contracts where 1 LOT = $1 per index point Trade on direction Trade as Hedge against dry bulk equities Trade as spread against FFAs

LIVE on IMAREX screen 24hrs per day

Creating Markets - the Imarex Group

Introducing the Baltic Dry Index

A composite of global shipping costs for bulk commodities such as grains, ore and coal on 26 shipping routes for supramax, panamax and capesize vessels (BSI, BPI and BCI) Indices and BDI based on daily professional assessments from panel of international ship brokers Previously the Baltic Freight Index closed in 2001 BIFFEX traded as forward market on LIFFE BIFFEX failed as a hedging tool for physical shipping now using FFAs Most public dry bulk shares closely tied to movement in BDI (up to 93% correlation)
BDI composition:

26 individual shipping routes Making up 4 separate sector indices Handysize, supramax, panamax and capesize vessels BHSI, BSI, BPI and BCI + Index multipliers

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Physical routes making up the Baltic Indices

C8 C9 C10 C11 P1A P2A P3A P4 S1A S1B S2 S3 S4 S4B HS1 HS2 HS3 HS4 HS5 HS6 172000mt Gibraltar/Hamburg trans Atlantic RV 172000mt Continent/Mediterranean trip Far East 172000mt Pacific RV 172000mt China/Japan trip Mediterranean/Cont 74000mt Transatlantic RV 74000mt SKAW-GIB/FAR EAST 74000mt Japan-SK/Pacific/RV 74000mt FAR EAST/NOPAC/SK-PASS 54000 mt Antwerp - Skaw Trip Far East 54000 mt Canakkale Trip Far East 54000 mt Japan - SK / NOPAC or Australia rv 54000 mt Japan - SK Trip Gib - Skaw range 54000 mt US Gulf - Skaw-Passero 54000 mt Skaw-Passero - US Gulf 28000mt Skaw / Passero - Recalada / Rio de Janeiro 28000mt Skaw / Passero - Boston / Galveston range. 28000mt Recalada / Rio de Janeiro -Skaw / Passero 28000mt US Gulf / NC South America - Skaw / Passero 28000mt SE Asia via Australia - Singapore / Japan 28000mt S Korea/Japan - Singapore/Japan range incl. China 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 25% 25%

CS4TC

PM4TC

SM6TC

HM6TC

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Other physical routes making up the Baltic indices

C2 C3 C4 C5 C7 C12 160000mt Brazil (Tubarao) Rotterdam 150000mt Barzil (Tubarao) China 150000mt Richards Bay/Rotterdam 150000mt West Australia/China 150000mt Columbia/Rotterdam 150000mt Gladstone/Rotterdam

Percentage contribution towards the BDI depends on each individual routes assessment. Approximate composition is as follows: CS4TC 23% PM4TC 29% SM6TC 17% HM6TC 9% C2-C7 & C12 22% TOTAL 100%

Creating Markets - the Imarex Group

Challenges for dry bulk equity investors

Physical dry bulk shipping is a fragmented and opaque market sector with a high degree of insider influence Price movements of Dry bulk shipping equities are closely tied to freight rates and the BDI Freight rates vary from ship to ship, ocean to ocean and from sector to sector no shipping share is 100% tied to one trade route at any time Experience of substantial equity losses caused by factors far outside their field of knowledge The FFA market has substantial volatility caused by unrelated insider influence and pure-paper market activity

Creating Markets - the Imarex Group

Elegant solutions using Imarex BDIFutures

BDIFutures is an Index futures contract based on BDI Using the BDIFutures contract, investors and stock portfolio managers can protect the value of the shipping equities from upside and downside price risk of the broader dry bulk market The Imarex BDIFutures contract can be traded in lots as small as $1 per point providing low barriers to entry 24hr electronic trading with very low transaction fee Imarex is worlds only regulated market for freight derivatives

Creating Markets - the Imarex Group

Imarex BDIFutures specifications

Underlying: Baltic Exchange Dry Index TM (BDI)

Lot Size: 1 lot = 1 USD x BDI tick (if index is 10,000 then 1 lot is USD 1 x 10,000 = USD 10,000) Minimum lot per trade: Maximum lot per trade: Settlement/Margins: Final settlement at maturity: 1 lot 999 lots Daily P+L and margins Average of BDI per month Last day of each month 6 months, 4 quarters, annual USD 8.00 pr lot incl. execution / clearing Directly on Imarex screen or via voice broker NOS Clearing ASA

Final settlement day: Forward curve: Fees: Execution: Clearing:

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BDIFutures for equity investors

Ticker GOGL.OL SBLK DRYS DSX EGLE GNK EXM TBSI PRGN NM JIN.OL NMM FREE * ** *** a) Name Golden Ocean Star Bulk Carriers Corp Dryships Inc. Diana Shipping Inc Eagle Bulk Shipping Inc Genco Shipping & Trading Ltd Excel Maritime Carriers Ltd TBS International Ltd Paragon Shipping Inc Navios Maritime Holdings Inc Jinhui Shipping Navios Maritime Partners LP FreeSeas Inc. NMM since 13 Nov 2007 PRGN since 10 Aug 2007 SBLK since 3 Dec 2007 in Norwegian Kroner NOK Exch. OSE NASDAQ NASDAQ NYSE NASDAQ NYSE NYSE NASDAQ NASDAQ NYSE OSE NYSE NASDAQ Share price 10/6 31.15 13.74 88.27 33.08 32.55 64.86 48.05 42.75 19.56 10.82 57.75 15.09 6.48 a) a) 1 yr daily 88% 87% 84% 82% 81% 79% 79% 77% 77% 62% 60% 34% 26% * ** *** Since Feb 1 daily 80% 93% 73% 83% 92% 85% 84% 84% 79% 55% 75% 15% 77%

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Hedging LONG GOGL:NO position

BUY 10,000 GOGL:NO at NOK 34 (NOK/USD=5.1) so USD 6.67 Notional stock value = NOK 340,000 (USD 66,667) IF BDI falls 5% in JULY GOGL could fall 4-7% or up to USD4666 SELL 6 lots BDIFut JUL08 at 11,000 = USD6 x 11,000 BDI falls 5% to 10,450 dragging GOGL:NO down 6% to USD 6.27 LOSS on equity position = USD4000 Profit on BDIFut JUL08 = 550 points @ USD6 = $3300 Total Profit/Loss = - US$700 (versus - USD4000 unhedged)

Creating Markets - the Imarex Group

Hedging SHORT DRYS Position

Sell 5,000 DRYS at $80/share Notional stock value = USD 400,000 IF BDI increase 5% in JULY DRYS could increase 4-7% or up to USD24,000 BUY 36 lots BDIFut JUL08 at 11,000 = USD 36 x 11,000 BDI increases 5% to 11,550 bringing DRYS up 6% to USD 84.80 LOSS on equity position = USD24,000 Profit on BDIFut JUL08 = 550 points @ USD36 = $19,800 Total Profit/Loss = - US$4,200 (versus USD24,000 unhedged)

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Trading through Prime brokers and GCMs

MF Global Newedge Group Macquarie Bank Deutsche Bank JPMorgan ABG Sundal Collier Carnegie Kaupthing DBS Vickers Matt Duggan +44 207 144 5390 Chris Bartlett +44 207 550 2207 Mark Fitzpatrick +44 203 037 4162 Henry Porter +44 207 545 5173 James H. Proudlock +44 207 777 3855 Erik Tynes +47 22 01 60 24 Tor A. Svelland +47 22 00 93 91 Eljar Roland +47 24 14 74 68 Roger Quek +65 6398 6066

Please contact the Imarex BDI-TEAM at any time for further contacts and contract information Sales and set up Broker BDI Desk - Thomas Bertel +47 23 89 42 46 - Mikkel M. Holmesland, +47 23 89 42 14

Creating Markets - the Imarex Group

Trade BDIFutures at Imarex today

www.imarex.com